Q -Your first huge success was Olé. You were the seed investor, it became a unicorn and it got sold in spring 2000 if I remember correctly. Best possible timing. Did you discuss timing, and did you feel something could turn sour in the markets back then?
LC -No. Not really. We did not make the decision to sell. We were very happy to sell, but it was the entrepreneur’s decision. Entrepreneurs very often feel that there will be some changes in the future. It was him who decided to sell. We were offered to be paid in shares of Terra at 8 pre-IPO, and said no, and then it IPOd and went to 150. I had a hard time explaining, until Terra shares went down to 2. I have never been riding the market — I am not good at that, and we could have done way better — and also way worse. Market timing is very dangerous. I consider myself as a value investor in venture capital and try not to pay too much attention to markets. So, I try to buy and sell according to value. I trust entrepreneurs more than the market.
Q -You were also seed investor in BlaBlaCar. What are your most important learnings from that investment?
LC -Well. My most important learning: it was not born as a unicorn but as a clumsy little colt. There was no sign making me believe this would be a billion Euro company. There was a wonderful team with a great idea. It reminded me of the 2004 CNBC Zuckerberg interviews — he had 100,000 users and did not know where it would go. Wonderful. A powerful team with some very good early market response. I did invest in another company a month later which had the same attributes and it is dead. You cannot select companies believing this will be a unicorn. You better invest in 10 with the potential of a BlaBlaCar and take randomness into account. You have to assume that there is serious uncertainty. Look at those three baby birds here. Statistically two of them will die soon and one will become an adult. Which one will make it? I don’t know. I have backed wonderful teams with wonderful market traction and there are so many things which can go wrong — you hit a wall.
Q -I agree — if you also take into consideration that your set of 10 you back still is the 1% of what you see and select. What are the signs you are looking at most to find out if the entrepreneur is a very good one or not?
LC -Completely agree. It is much easier to find the ones which are unlikely to make it. Talking about signals, I like people who carry companions from former environments into the new startup. If you are alone it is not a good sign. How to tell if someone is a leader? Instead of looking at him, look behind him: If he has followers, then he is a leader. In my experience education is also very important, and usually undervalued. If I look back at my best exits there is a disproportionate number of founders with MBAs from top business schools and technical people from top universities. Also, experience is important to me, and undervalued, I believe. You can be inexperienced but have to be aware that knowing an industry is advantageous. On the other hand, I do not value passion a lot although the best ones I backed for sure had a lot of passion. But the worst had the same passion. Here we have the survival bias again. All entrepreneurs, those that succeed, and those that fail, all typically have a lot of passion, an incredible commitment, and they all work really hard.
Q -What are your most important learnings from unsuccessful investments?
LC -Again: there is a residual of uncertainty you cannot analyse. My biggest loss so far was EUR 2m in the Groupon model. I never backed a team as good as this one. They had worked together before, market response was great and then… it was the biggest failure. Looking back, it was lack of competitive advantage. If you cannot build that it is very difficult to create returns.
Q -Did one sell to Groupon or did all Spanish Groupons die before?
LC -One did sell to Living Social but that was it. No wait… There is one very local guy in San Sebastian who has survived and has built a nice local business.
Q -You kindly introduced btov to Francisco Penalver, founder and CEO of Credimarket. You had backed him as a seed investor earlier and we then invested as well. Now, three years later, we have realized a very nice exit. Thank you, Luis! And of course, thank you Francisco! What is coming to your mind when you look at this trade sale?
LC -It is a very interesting case. At the point it was, the company had to make a big jump and double down the risk. The business was working, and the company had gotten there with an incredible capital efficiency. But now the company needed to multiply the investment in brand and technology. What happened was that Francisco had many doubts, and did not want to do it himself. He saw a big risk, and, for personal reasons, became very risk conscious at that precise time. He had a clear view of how to build that brand and technology, but he also saw a very cyclical business at a high point in the cycle, he saw the investment and risks the new strategy required, and for personal reasons simply did not want to go further. So he decided to sell, give investors and his team a good return, and look for a buyer that could take the company to the next level.
The buyer he found is the right owner to build the brand, the business and go through cycles. Bauer realised a good buy and Francisco has done a good exit. Could we investors have made better returns if we had waited for a few more years? Probably so, but running more risks. I personally would have preferred to run those risks. We investors are normally willing to take more risks than entrepreneurs, and that makes sense because we are diversified. But we have to trust entrepreneurs as solid as Francisco because from the trenches, they often have a better feeling for what is coming and make better exit decisions.
Q -So far — what has been your most pleasant surprise as an angel investor?
LC -Seeing entrepreneurs who have been able to do things without money. We investors are not that important. We are suppliers of resources. We are part of it and I am a part of it but we are not that important. If entrepreneurs and markets fit, the company takes on a life of its own, and becomes successful and strong. Some entrepreneurs I backed raised a round and never touched that money. When everything starts working on its own, without your support — this is just great. Entrepreneurship is like pushing a big rock up the mountain and if you stop pushing it will crash you. But then, you reach the top, and gravity starts working for you, instead of against you. It is not easier, in fact, it may become even more difficult if you have to follow the rock accelerating downhill, but it is different feeling. I really like it when companies no longer need investors anymore. It is like a plane taking off after strong jerking on the runway or even better: Kids starting to walk on their own, after having trained for it each and every day for so long.